UPSC Prelims 2016 – Question 3

Q3. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?

1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Reducing import duty

Select the correct answer using the code given below.
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2, 3 and 4

The correct answer is 1 and 3 only. 

• The fiscal deficit 

• It is defined as the difference between total revenue and total expenditure.  
• Subsidies are a significant component of government expenditures, and reducing them reduces the fiscal deficit. Hence, statement 3 is correct. 
• Revenue expenditure neither creates assets nor reduces the liability of the government. Unnecessary revenue expenditure increases the fiscal deficit. Therefore, reducing revenue expenditure has a very large effect on the fiscal deficit. Hence, statement 1 is correct. 
• Introducing new welfare schemes neither creates assets nor reduces the liability of the government and will further enhance the fiscal deficit. Hence, statement 2 is not correct. 
• Reducing import duty will reduce tax revenue and thus increases the fiscal deficit. Hence, statement 4 is not correct. 

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